Q4 2020 Molson Coors Beverage Co Earnings Call
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Good day and welcome to the Molson Coors beverage company fourth quarter and fiscal year 2020 earnings Conference call. You can find related slides on the Investor Relations page of the Molson Coors website.
Our speakers for today's call are Gavin Hattersley, President and Chief Executive Officer, and Tracey Joubert, Chief Financial Officer. Please note that this event.
And it with.
That I'd like to turn the call over to Greg Tierney, Vice President of S. T E N E and Investor Relations Mr. Seely. Please go.
Thank you operator, and Hello, everyone.
Following prepared remarks from Gavin and Tracey, we'll take your questions. Please limit yourself to one question and if you have more than one question. Please ask your most pressing question first and then reenter the queue to follow up.
If you have technical questions on the quarter, please pick them up with our IR team and the days and the weeks that follow.
Today's discussions include forward looking statements and actual results or trends could differ materially from our forecast for more information. Please refer to the risk factors discussed in our most recent filings with the SEC.
We assume no obligation to update forward looking statements.
And GAAP reconciliations for any non U S. GAAP measures are included in our news release or otherwise available on our website.
Also unless otherwise indicated all financial results. The company discusses are versus the comparable prior year period, and and U S dollars.
And with that over to you Kevin.
Thank you, Greg and <unk>.
Thank you all for joining us today.
2020 was an incredibly challenging year for everyone Molson Coors included.
But in many respects a consider us lucky.
The revitalization plan, we put in place and October of 2019 positioned our company well to weather the storms of 2000 and Jordan.
Our business with leaner and more nimble, which put us and the better positioned to conserve resources as the circumstances dictated and you deploy them effectively and circumstances about.
The results bear that out.
And you consider what we set out to do under our revitalization plan.
And incredible amount from 2020 and that has given us a tremendous springboard from 'twenty 'twenty one.
Our two largest brands Coors light and <unk>.
Coal grew six one and eight 6% and the use of premise respectively.
Our above premium brands and the U S reached a record high percentage of the portfolio and the second half of 2000 and training.
Beyond beer, our first foray from non alcohol and cannabis beverages through the trust joint venture has made that the number one dollar share spot and.
Tier Canadian beverage market.
We increased our production capacity for our fast growing sales by approximately 400 per se.
And we approximately doubled our annual investments and our hometown communities.
Net.
Is the story of Molson Coors and 2020.
Now you may be wondering why I have such confidence, especially if you look at our consolidated top line results from the fourth quarter.
The net number alone does not tell the full story.
And if you only look at that piece of the data you'll miss it.
Our top line results from the fourth quarter were overwhelmingly due to losses, resulting from government restrictions and European on premise channel.
To put it more bluntly Europe alone accounts for 92% of our fourth quarter top line decline.
But those results from not reflective of the equivalents, we've seen across the rest of the business and the story is very different and our largest market.
And how different.
And the fourth quarter Molson Coors grew net sales revenue in the United States.
We grew the top line in the United States.
Our plan is working.
So, let's look deeper and our results from 2020, and what we have in store for 'twenty and 'twenty one.
Our first pillar under the revitalization plan was to build on the strength of our iconic core.
In the U S. Our largest peers Coors light and <unk> delivered $6, one and eight 6% expected growth in the off premise.
And again grew share and the premium logistics and they finished 2020 with stronger brand health.
We are pleased but not satisfied with those results.
So in 2021, we're going to put even more marketing behind these two iconic brands and we're thinking big and as you may have noticed around the big game last weekend.
And again I want to point something out here, we are demonstrating our ability to grow and shelters and expand beyond beer, while strengthening our core brands we have.
Demonstrating we can do book.
The revitalization plan was specifically designed to free up resources. So we can meaningfully invest behind our coal.
Growth in above premium and our expansion beyond beer.
And the second half of 2020 above premium productivity record high portion of our U S portfolio relative to any prior year comparable period.
We doubled our share itself is from us moving towards a double digit share go by the end of this year.
Disney has been a top tier growth story and for nearly six strength.
This is incredible growth has been accomplished with basically just one thing.
And in a few weeks, we plan to add more firepower that brand with a sick and variety pack and a few weeks later, we pledged loans. This eliminate lineup. We believe is tailor made for busy given its unique antioxidant vitamin C attributes.
And we are excited about the opportunity for Crystal, which launched at the end of September.
We are seeing promising signs, including repeat rates that are stronger than Bud light seltzer and Corona seltzer same points during the launch.
And 2021, we have strong plans to accelerate marketing support behind Coors Seltzer as well as its commitment to help save America's livers and Thats just the beginning.
We are about to launch type of Chico hard seltzer, which is getting a lot of attention from retailers and distributors alike.
Type of Chico mineral water is beloved and the biggest pockets throughout the non space, especially in Texas high potential market.
Quickly on Appeals, we plan to bring temperature, Ron Schwartz to market and the.
Again, we see this brand is best positioned to take advantage of the large order credits and it's being used.
Spud by type of chicken mineral water and Ccs mixing our branch water at home.
And still to come as proof points are first spirits itself.
When all forest health disorder market. Later this spring we believe we will book the strongest most differentiated cell to lineup and the United States.
And while we started behind other than the United States, and Canada and Europe, we are early entrants and the hot chocolate category and.
And the next couple of weeks ago, taking both busy and Coors Seltzer into Canada and.
And Europe building on and existing brand partnership already and markets. The launch of our own three fold brand sales planned for March and we will be leading the development of the category across central and eastern Europe, with and owned brands and the second quarter.
And above premium bids we have high expectations for Bluebird and Lascar, which ended 2020 is the number one <unk> and the United States per Nielsen.
We've expanded its production capacity by approximately 400 per se, we're putting more marketing muscle behind it and we believe this is a brand and it's going to continue to rise for quite some time.
Our regional craft portfolio, and United States grew 17% per Nielsen and 2020 outpacing the cross segment once again.
And next month, we will be taking hop valley national in the U S and Canada.
First national IPA, we believe it will be another driver of growth for our above premium portfolio.
And do not forget about giggling.
This fall the newly formed joint venture plans to beginning to one of America's biggest beer drinking states, Texas.
The reception has already been incredible and there is significant upside potential with getting the joint venture begins.
It's Westwood expansion.
At the beginning of last year, we changed online to the Molson Coors beverage company and it wasn't just words.
By the end of the year on non Alco strategy came into focus.
And we're piloting our owned brands without partner elevations, we've taken equity investments and other opportunities, including two with legendary and non innovative Lance Collins.
We signed distribution agreements to enter the fast growing spaces like RTD coffee with la <unk> and energy drinks with Zillow.
And in partnership with the leadership team led by Glenn.
John.
Zara is getting very positive reaction from retailers and distributors.
The Rockies and just putting his name on this these personally making close to retailers and we're bringing net market. This spring, we think that it could be a game changing and energy drinks space.
<unk>, Canada, our Canadian cannabis joint venture with <unk> launched the beverage portfolio in August.
And by the timber that jumped to the number one dollar share position with four of the top five candidates beverage Skus and Canada and.
Trust USA is building on that through the first lineup of hemp derived CBD beverages, and Colorado, which entered the market in December.
We are learning a lot about the exciting category and following the launch.
And this entire lineup is a tremendous growth opportunities for our business and it will be a driving force behind our goal to build our emerging growth division.
And $1 billion revenue business by 2023 and.
And as a reminder.
That ambition does not include a hard seltzer.
And we recently announced our first entry into the fast growing RTD cocktail space through and exclusive equity and distribution agreement with Super Bowl and above premium Tequila based Paloma.
Last year, we also made major investments to help our business grow the topline we envy.
<unk> and our E commerce capabilities, all around the globe with most off and more robust digital capabilities.
And its titles last year with 230% growth in ecommerce and the U S alone.
We expanded our seltzer production capacity by approximately 400%.
And we also expanded Alaska production capacity.
Approximately 400 per se.
We completed a free can production loans capable of manufacturing and approximately 750 million and seeking any of it.
And on the topic of Ken I'm really pleased to say that our packaging materials and supplies bosky improve for glass bottles, paperboard and tokens with all returning to normal material availability and.
In fact, our Coors light cat inventory is higher than it was at this point last year.
And our industry standard can't supplies and prudent.
<unk> cash from four continents and work closely with our suppliers to keep up with the very high range of consumer demand and we expect to return to normal material availability by the end of this quarter.
We will continue investing and our capabilities throughout the year.
Book to drive our ability to produce higher margin above premium products.
Last but certainly not least is how we are supporting our people and our communities.
One is particularly important to me.
And when I took over as CEO I've made it clear that I want most inclusive of a people first culture net.
<unk> approach guided our decision making throughout the last year.
The work and the space, we've never done, but we are making important progress.
Last summer, we set a goal of increasing the representation among people of color and United States by 25% by the end of 2023 across the country, among salaried employees and and leadership positions each way market availability shows we have room for improvement.
And make progress towards that goal and we expect to continue to do so.
We also increased our support for organizations dedicated to equality common ratio Justice and community building and provided nearly 3 million meals for families and our.
Hometown community is struggling with food and security.
But we must do more.
So today I'm proud to announce that not only what we recommit to matching last year's investments and our communities. We are also committed to spend a total of $1 billion with diverse suppliers over the next three years.
This is a commitment that benefits all of us.
A wider base of talented suppliers with different backgrounds and loss experiences will be a benefit to our company.
And the diverse suppliers and our business will be able to turn and in turn higher more talented employees into the businesses.
Last summer, we said that Molson Coors response to address and gradually justice would not just be a moment in time, passing thing satisfied and <unk>.
And there's other priorities took over that would be unacceptable.
Our commitment to investing and our communities and striving for equal opportunity for all people will not flow.
Even with the unforeseeable challenges of last year, we both from a strength of our iconic core and.
And second half of 2020, we achieved a record high portion of our U S portfolio and above premium products, we expanded beyond the Bureau, we invested and our capability, we supported our people and our communities and we are not about to stop now.
And I took out of this low I told you that we plan and invest to grow our top line, we're going to follow through on that and we are on the pathway there.
Folks this is a revitalization plan and action.
And they have been questions about whether or not we can execute all of this but no one has to wonder any longer we redoing it and right now two day.
And now I'll turn it over to try and Steve can provide you with more detail on our financial performance and our outlook for 2021.
Thank you, Kevin and Hello, everyone.
The coronavirus and indicate a significant impact on our 2020 financial performing primary EQT and payments restrictions and Lockdowns.
Our Europe business, plus the net impact, particularly in the UK.
Thickness skewed heavily towards the premium and growth revenues and EBITDA declined in the fourth quarter and for the full year 2020.
In fact, Europe, which accounted for and a 15% of our revenue and <unk> contributed 61 could think of operating at the time and ATC to think about EBITDA per tonne per day, yet and.
And 92% of the revenue decline and 56 the thing about EBITDA at the time for the fourth quarter.
Despite these incredible challenges and <unk>.
All product areas and again and the financial performance and we have navigated through these unprecedented times.
Now let me take you to our full year performance and then I'll touch on our quarterly results before moving on to asset.
Recapping the year consolidated net sales revenue decreased eight 7% and constant currency average North America was down four 3%.
And Europe was down 28, 4% on a constant currency basis.
While we delivered net processing clients in North America, and Europe, as well as positive brand and package mix and the UAE. This is more than offset by volume declines and unfavorable channel mix, principally driven by David degrees of unclaimed restriction through much of the year due to the coronavirus pandemic, which also grew.
Packaging material strength due to the unprecedented demand.
And volume declined seven 8% and financial volume declined eight 9%.
North American shipments increased.
And please in the second half of the year and packaging material constraints ease and we both distribute and inventory.
Net sales to hectoliter on a brand volume basis.
One, 1% and constant currency Q2 pricing growth in North America, and Europe, as well as positive brand and package mix and the UAE.
The pace of that.
Premium innovation, including Cindy daily not Guy and Chris Carlson helped drive any thoughts that you can either at two 3% per day, yes.
Underlying cogs per hectoliter increased two 8% on a constant currency basis, driven by cost inflation, including higher transportation costs volume deleverage and mix impact from premium amortization and North America, partially offset by cost savings.
Higher cancels and costs in North America contributed to the higher cost and Jason.
After the onset of the coronavirus pandemic, we are grateful to be begin, forcing additional aluminum cans from all over the world to support our core brands to create unprecedented op famous demand.
Also we force targeting of the freight markets throughout the year.
And <unk>, which has lead to higher transportation cost.
Underlying and G&A decreased non <unk> non <unk>, Inc. On a constant currency basis.
Ken.
And stand away from areas impacted by the coronavirus pandemic, particularly live entertainment and Keybank and Falcon and <unk> Bank, Keith is shortened or delayed season, such as the delayed startup of the NHL season into 'twenty 'twenty one.
And the second half of the year, we began to per fleet with the increased marketing spend, particularly in social and TV media support.
The fourth behind our new innovations such as busy day may not Scott and Chris Carlson and alignment with additional supply coming online as well as continuing to support our call Chris.
And then the Nox and other iconic propane.
And G&A declines were also driven by targeted cost mitigation actions and.
<unk> cost savings and a 50 of our revitalization and cost savings program.
In aggregate, we delivered approximately $217 million.
And G&A and cost of goods sold.
Placing us on track to meet our 600 million target in total gross savings.
These reductions were offset by innovation, Spain, and starting low incentive compensation and a non recurring gain the benefit and the prior yet, which we referenced last quarter.
As a result underlying EBITDA decreased 10% on a constant currency basis.
Underlying free cash flow was $1 $3 billion per the year, a decrease of $104 million from the prior year, driven by lower underlying EBITDA and higher cash taxes, partially offset by favorable working capital.
The working capital benefit was driven by the deferral of approximately $150 million and tax payments and.
<unk> seven and funds the payment deferral programs related to the coronavirus and Danny.
Of which we currently anticipate the majority to be paid in 2021 as they become Keith.
Capital capital expenditures and could with $550 million per year.
With increased liquidity and strong cash management, we were able to accelerate 50 basis, and expanding our production capacity and capability to support new innovation and growth initiatives.
In addition to the strong free cash performance, we made tremendous strides in improving our financial flexibility, including continuing to pay down deep favorably and maintain our <unk> revolving credit facility and suspending our dividend and may for the remainder of 2020.
We reduced net debt position by $1 1 billion and 2020 and reduced our trailing 12 months make day to underlying EBITDA ratio to three and a half time and we remain committed to maintaining our investment grade rating.
Now, let's discuss the fourth quarter later again, Europe and clinic Lockdown had a significant and disproportionately negative impact on our results.
Consolidated net sales revenue declined eight 3% and constant currency, principally due to financial funding to comp as a result from the on premise jurisdictions, along with corresponding negative channel mix, partially offset by net profit and growth in North America, and Europe, as well as positive brand and package mix and the UV.
North American net sales revenue was down 1% and constant currency.
Even in the UAE increase.
Increased on premise restrictions and aluminum cans. The conference strength, we delivered net sales revenue growth of one non sustained in the quarter.
And we continue to both dish and distributor inventory and the UAE with brand volume down six 2% compared to domestic shipment declines of 2015.
First and the U S business was more than offset by lower volume and negative mix and Canada and to a lesser degree Latin America as a result of the on premise restrictions.
And Europe net sales revenue was down 69, 4% and constant currency driven by volume declines and negative mix due to increased and payments restrictions with the most meaningful and the U K, which experienced a return to almost total on premise lockdown for November and the historically strong months of the sales.
Hi.
And with the subdued nature of many faiths of celebrations during the fourth quarter, we did not get big shift of volume into the off premise.
Net sales per hectoliter on a brand volume basis increased three seven and sustained and constant currency, reflecting net pricing growth in North America, and Europe, moving off taking the negative mix effect of the various market dynamics and consumer shifts caused by the coronavirus pandemic.
And the <unk> net sales to decrease on a brand volume basis increased.
We'll keep the sales driven by favorable sales mix from new innovation and strong net cost and growth.
While in Europe net sales per hectoliter on a brand volume basis decreased eight 2% due to unfavorable mix, particularly driven by the higher margin U K business, which more than offset cost increases.
Underlying cogs per hectoliter increased six 4% from a constant currency basis, as we saw a greater impact from price inflation and mix premium amortization in Q4 compared to the full year.
Thank you and I and the quarter increased five 8% on a constant currency basis due to higher planned marketing to support our core brands and key innovation.
As well as back in low and thank the compensation and a non recurring gain the benefit in the fourth quarter of 2019.
This was partially offset by cost savings and lower discretionary and.
And the results underlying EBITDA decreased 33, 6% on a constant currency basis disproportionately driven by yearend.
Given the length and severity of the impacts of the coronavirus pandemic on our unit business as well as the protracted recovery currently expected and Seaton on premise market, we recognized a goodwill impairment charge of $1 $5 billion and our Europe statements. We also recognized a $59 6 million of exit.
And payment charges in our North American statements.
These charges are noncash and are not included in underlying results.
So this takes me to our financial outlook.
As you may recall and marks the 27th and last year, we withdrew our guidance due to the uncertainty driven by the coronavirus pandemic.
Balance sheet and to remain in and if it can help enhance visibility we have determined to reinstate our practice of providing guidance.
I've also became and suggest the metrics provided which includes adding guidance for net sales revenue and metric, which aligns with our Reebok lot day contango for cloud and topline growth.
As well as make day to underlying EBITDA leverage ratios given our commitment to remaining investment grade.
So we are very proud of our performance and agility and navigating the coronavirus pandemic and executing against our revitalization, Kent, but recognize that headwinds from may.
The pandemic continues to impact our business due to unplanned losses across all our geographies and disproportionately true in Europe as well as Canada.
We expect domestic shipment trends and the UE continues to be higher than brand volume trends and the fifth quarter as we continue to both inventories and hitting into the peak season.
For the year, we maintain our annual goal of shipping to consumption and the UAE.
In Europe, we continued to experience significant lockdowns and expect fourth quarter volumes will be materially impacted based on the price.
Yes period.
Relative to what was experienced in the fourth quarter of 2020.
For 2021, we expect to deliver mid single digit net sales revenue growth.
2021 is intended to be a Europe and Jason as we continue to lever our revitalization plan and track towards long term growth.
This and sales increasing year over year marketing spend to bolt on the strength of our core brands and support our successful 2020 launches, including Lehman and not busy and could outfit and new innovations to come as well as investing and further expanding our capabilities to drive productivity and.
Steve.
We expect significant increases in Spain, beginning in the second quarter versus the prior year comparable quarter.
While we continue to expect revitalization plan savings at this time, given this increasing basin, along with cost headwinds related to higher inflation, including transportation cost.
And continued premium amortization of our portfolio, we anticipate 2021 underlying EBITDA to be approximately flat compared to the price yes.
We anticipate underlying depreciation and amortization of $800 million.
Net interest expense of 270 million tons from minus 5% and and effective tax rate in the range of 20 to $22 eight.
We enter 2021 with greatly improved financial flexibility data, enabling us to not only continue to invest in our business to continue to pay down debt and return cash to shareholders in 2021.
As I mentioned, we significantly reduced our net debt position by $1 $1 billion in 'twenty, and 'twenty and reduced our leverage ratio to three and a half time and of the seamless study phase 2020.
We are proud of this protocols and.
As sandy hitting a target net debt to underlying EBITDA ratio of approximately three to five times by the end of 2021 and below three times by the end of 2022.
And we currently anticipate that our board of directors will be in a position to reinstate a dividend in the second half of this year.
We're doing all of this by continuing our commitment to maintaining any time upgrading and based on great racing.
Given the operating environment, we are pleased with our 2020 financial performance, which underscores our strong progress against our revitalization plan and the resilience of our company and our people who have been knocked us to successfully navigate and other <unk> challenges posed by the coronavirus pandemic.
While these challenges have created from near term fluctuations and financial and operating results. We are confident on the rock cost of driving towards long term revenue and underlying EBITDA growth.
And we look forward to updating you on our continued progress.
So with that we look forward to taking your questions operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one and you touched on zone Youre using a speakerphone. Please pick up your handset before pressing the key sales.
Your question. Please press Star then two please limit yourself to one question. The first question today comes from Andrea Teixeira with Jpmorgan. Please go ahead.
Hey, Good morning, guys. This is actually Joe on for Andrea.
Alright, and just the high level.
Hey, how are you just at a high level. We're just wondering if you could provide a little bit of color on how the accretion per trended quarter to date, and both North America and Europe.
Look we don't provide guidance on.
Yes.
And months Depletions lots of ups and downs, but from a European point of view as Tracey said in the opening remarks and fragrance remain in lockdown and so.
So we expect the first quarter volumes in Europe, and particularly in the United Kingdom and to be.
To be challenged.
And from a from a U S point of view the Lockdowns remain low but it does vary from from state to state and we do see a loosening of on premise restrictions both in North America and in.
In Europe, as we progress into Q2 and further on into into the year from a from a supply point of view just reiterate Mark's comments and the script about Coors light can supply much improved and our inventory levels are actually higher than they were at the same time last year, and we're well positioned to.
And to take advantage of.
And the brand health and strength of Coors light.
Thanks, Greg and then question comes from Kevin Grundy with Jefferies. Please go ahead.
Great. Thanks, good morning, everyone.
And I want to spend some time on Europe, just given the impact.
Impact and the quarter, so obviously free challenging both from a revenue and profitability perspective understanding of the impairment charge is non cash it naturally signals are less confident outlook and ability to return to levels of profitability, perhaps you'd previously thought at least within a reasonable amount of time, when youre doing a discounted cash flow mom.
Good day to get your updated views on your outlook for this business strategic fit within the portfolio and how youre thinking about the cost structure given this less constructive outlook and then Tracey for you Relatedly.
And not to get too much in the weeds with this and I'm just trying to understand the margins and the quarter. So the top line pressure and the second quarter was worse than the fourth but the margin performance was clearly a lot more pressure the decremental margins and the second quarter.
About 25% closer to 60% and the fourth quarter and just seem like there is a better ability to sort of flex down and G&A and the second quarters and there wasn't the fourth I think it would be useful for folks if you could maybe spend a little bit of time on that so thank you Bob and I'll pass it on.
Thanks, Kevin.
I'll talk about.
Europe and performance, specifically look I mean, the on premise restrictions and Q4, where we're fairly draconian.
There was somewhat of a scattergun approach across across Europe, which we spent a little harder for us to to plan and and react to particularly on the on the cost line.
And when you compare Q4 versus Q2, the impact for Q4 was particularly pronounced because.
<unk> historically been a very strong month for the on premise and the U K given given the holidays and of course.
You can't be outdoors that much comfortably and.
And the fourth quarter as much as you can be and the.
And the second quarter, and it's also a seasonally lower trading period and.
And central and Eastern Europe.
We saw similar declines and the second and fourth quarters from a volume perspective, but the on premise restrictions and the second quarter were more uniform. So it made it easier for us to to plan certainly be the Lockdowns as I said earlier and have continued into the into the first quarter. We did make some conscious decisions and Q4 that Kevin.
And to invest behind our core brands not only in the United States, but also in Europe and in particular and.
And Central Europe, we've got some strong brew.
And.
With a strong healthy brands.
And we wanted to make sure we position ourselves for sustainable recovery in 2041, So that explains why the MD&A and Europe was.
A little higher than you and you might have been expecting we were investing behind the.
Our power brands.
What else Christian and then yes.
Thanks, Kevin.
And the strategic outlook, Okay, Yes, look I mean, Kevin and our top priority as a company as a whole is to make sure that we emerge strong coming out of the pandemic when the on premise returns to more normalized levels and this includes Europe, which we continue to view as a <unk>.
Strategic assets.
And then thanks Kevin.
And if I can just jump in on the margins in.
In Europe, and Q4, we focused our marketing and data on specific brands and markets, where we have capacity and we needed to ensure that can be with competitive and conflicts of share of voice and brand health metrics.
And third the dates and that we made in Q4 and Europe to support the ongoing performance of our National champion brands and our premium amortization.
And then also just cannot be restocking comparatively much locked sustained in Q4 of 2019 in central Europe.
Accounts with some of the margin differences.
Okay. Thank you very much of a bunch of questions and I'll pass it all and thank you.
The next question comes from Kumar <unk> with Credit Suisse. Please go ahead.
Hi, Good afternoon, everybody came from can you talk a bit about your expectations from the on premise for 2021 as it relates to what you've incorporated into your into your guidance and what sort of and specifically to the U S.
And what rate do you expect it to recover how much does that contribute to your numbers and then if you could also maybe help us with.
And mechanically what that means for your business I believe your shares are higher off premise, we kind of know that over the course of 2020 large pack sizes.
Started to a larger degree of share from while the rest of what was being sold at food retail and that obviously will look very different when we get to and on premise and more normalized on premise environment. So.
Is that a net net share beneficiary is the on premise turns back on to force the opposite direction. If you could help us with some details there that'd be helpful. Thank you.
Thanks, Kobo and not in there, let me try and give you some context.
The reality is the situation remains fluid and various markets.
And by market.
And the third quarter of last year, we did see some on premise reopening it's pretty much across the board and the countries and which we operated and during the fourth quarter, we sort of terms and a much more severe on premise restrictions as most countries. We are expecting to strict lockdowns and there was no benefit of outdoor dining given day.
And the climate.
In terms of our major markets in the UK and the government operator, the tiered system or restrictions in October and they followed that up with a national Lockdown and in.
In November.
Turning to a tiered system in December but.
Pretty much.
And as Lockdown as we speak.
And in North America, Canada was particularly.
And it impacted more than the U S from a lockdown point of view it was a stricter lockdown and then we really did see varied picture across the United States.
Depending on which states from an on premise performance point of view and the United States.
Early thirties.
Fairly stable for a while now.
And.
That big Spike up.
Pulled down in terms of market share, we think that the consumer moving to big and trusted brands will benefit us and only markets and which in which we operate and where we have seen reopening and we've seen that flow through from a from a market share point of view. So I think we will be net.
Beneficiaries and that takes place, obviously and our above premium portfolio. We were very pleased with our performance and above premium and the fourth quarter and net in the face of Blue Moon and variety, which is strong on premise day brands being obviously challenged because of the lack of on premise and we expect that when the on premise comes back more fully that those cheap.
Brands will be.
Big beneficiaries of it.
If you look at the UK, which is our largest.
Which is the market, which has the largest on premise.
Exposure.
We have demonstrated a sustained track record of growing our share and me.
And the on premise in the UK flow for at least five years pre pandemic, we've grown our share and the on premise.
As we've driven to be first choice for our for our customers and in fact, just and this week that we were number one again with our customers and the net promoter score survey across the trade in 2020.
And we've got contracts to supply and many of our competitors and both the retail and wholesale models.
Our customers.
Value the service that we that we bring through our own brands and also our wholesale brands and so we believe we're well positioned to gain share and the UK markets when it when it reopens.
I think I got all your questions there Cabo.
Yes, you did and then and it was probably unfair and it was a lot of questions and one.
So I would ask is just a follow up on the portfolio.
And maybe your best guess you've announced.
A series of deals over the last number of months. If you were to maybe give us and I can you can you give your best guess.
And what your portfolio breakdown is likely to look at look like by the end of the years and still likely to be about two thirds premium lights.
Followed by <unk>.
Followed by <unk>.
Hi, and and then I don't know how much the.
Non op will be as part of it but maybe just give some ideas.
Put all of these deals together and your portfolio may look different as we move forward with the rollout of these products and the next 12 months.
And let me try and give you some color they come and obviously, we've been very clear about the objective and a revitalization plan of driving our above premium portfolio and our beyond beer portfolio.
All of the deals we've done.
And that's above premium margins so that was.
Two of the five focus areas and a revitalization plan that we announced in October of 2019 and <unk>.
And to continue building on that you could see the results of that and both the third quarter and the fourth quarter with or without <unk>.
Positive mix, which we generated we generated another quarter of above 200 basis points of positive mix, which is which is continuing to reflect.
Our growth and performance and above premium per Nielsen, we actually grew share of above premium despite the on premise challenges, which brands like Blue Moon and peroni.
<unk> experienced.
We think that.
Yes, we are.
Obviously put out the ambition of getting to $1 billion revenue for our emerging growth division, which is going to require that many of our partnerships that we've just announced block zone.
And ship luck alarm and so on are are successful.
And coming off of a standing start of zero, because we didn't have them before.
I'd also point you to the fact that we actually grew the top line in.
The very market.
Concerns have been expressed about our ability to execute we grew the top line and the fourth quarter. Despite all these.
Deals that we've done and the challenges that we faced and we're going to build on that and.
In 2021, there is a lot of excitement from retail and from our distributors with the deals that we've done.
And particularly brands like la.
<unk> Zara.
And and type of Chico's and a lot of excitement and that will continue to improve our above premium mix.
That's helpful. Okay, great. Thank you.
The next question comes from Sean King with UBS. Please go ahead.
Hi, good afternoon.
Yes. My question is with hard seltzer, becoming a larger portion of the mix and I guess the growth story going forward, but can you discuss I guess, the gross margin profile of that business for you and how that could change over time.
Now the hot sauce, there has been a very strong growth category. We believe that's going to continue and in 2021, and we're excited about our opportunity for hot sauces.
We think we've got one of the strongest portfolios of hard surfaces.
With each brand and having a very unique perspective on the category.
And at the time that we have all four of our HUD Celsis and markets. This year, we think it's differentiated towards differentiated offerings for our consumers and I think we will place.
Celsis do operate at the upper end of the above premium price points and therefore operating fees.
Sort of upper and above.
Margin structure, we don't give it up.
Publicly specifically, but you can you can be assured that that is.
That's at a time.
Great. Thank you very much.
The next question comes from Chris Carey with Wells Fargo. Please go ahead.
Hi, good morning.
I guess just conceptually.
Try and understand how you think about the off premise channel and 2020.
Certainly.
There was more strength there.
As there was a channel shift, but I guess I'm also hearing that it sounds like you think there is some sustainability.
And the growth that you've seen there and certainly youre going to be investing behind that and.
And so and I guess underlying the question is.
I'm trying to understand what you think might be sustainable coming out of this year and <unk>.
Certainly in 2021 and <unk>.
And if the recovery of the on premise is a bit slower than.
What might happen and just trying to understand and sensitivities around what's needed and required and the and the off price in order to get and as topline growth algorithm. Thanks.
Okay.
Certainly believes that there will be some sustainability to the off premise demand I think consumers.
And new behaviors and.
New occasions have been credit and so I think there will be some sustainability of acknowledged.
We don't believe that it is going to continue.
Two growth the same at the same level, but there certainly will be sustainability to the underlying trend. There is a very large pent up demand for on premise from consumers and so I think when the on premise is more readily.
Open I think you'll see us strong pent up demand from.
Consumers the other behavioral change, which we've obviously experienced in 2020 as the growth of E. Commerce sales and there are many consumers of alcoholic beverages and it didn't realize you could buy beer online and they do now and we've seen two.
And 230% increase and our online sales and I think the vectren.
And we will stay and that's why we're making investments in AR.
E Commerce capabilities.
Thanks, Chris.
The next question comes from Bonnie Herzog with Goldman Sachs. Please go ahead.
Thank you hi, everyone.
And I guess I'd like to hear a little bit more color on how youre thinking about balancing your investment needs.
Clean your recent innovations and some of the launches with marketing support behind your core brands I guess, what I'm still may be struggling with is how you plan to stabilize or maybe even improve your core business.
And a lot of your stepped up investment spend and attention is going to be focus behind all these new initiatives and then.
Kevin maybe you could help frame price some of your targets or ambitions for your core business similar to how you're framing the opportunities and some of the goals you put out there for all of these new and exciting brands and partnerships I think that would be helpful. Thank you.
Thanks, Bonnie look I mean, our revitalization plan, which we announced in October 2019 required us to do both and net was our that's our plan and it remains our plan.
And investing behind our iconic core brands.
And investing behind above premiums and investing behind our beyond.
<unk> portfolio is is the plan.
Tracy mentioned and the guidance.
Approximately flat EBITDA net.
Really the revitalization plan income coming to life with a.
Big investments behind both Miller Coors language will see more spend this year, we will put more spend behind our above premium portfolio with blue Moon and lot Scott.
And Blue Moon will put more money behind <unk>, we will have full sales was in market. This year. We only had two one was launched in April. The other one was launched in September. This year, we are going to have full as we strive to get to the 10%.
Market share and we're going to be investing behind.
Our new ventures like.
Zola, and Luckily <unk> and <unk>.
And also are you.
Joint venture and <unk>.
Terms of actual performance.
Coors light and Metalogic performed.
Really well.
In spite of the.
The headwinds, which they've got we've made numerous pivots from a from a marketing point of view to meet the changed circumstances and witnessed the C. We put.
Marketing money behind us in the fourth quarter force pull for example.
From a media perspective, we shifted our media to two.
Places like social gaming podcasts online video and so on and and from a creative point of view.
And with credit.
And new credit, which has resonated with consumers.
We've actually created 40 pieces of new creative since since March.
A lot of that has been behind Miller Lite, and Coors lots and just some examples of that would be I'll say well work on it and party for Formula Lags and then a campaign to get from Florida and to the Pro Football Hall of Fame.
With Coors light and you can see the benefits of that with both of those brands Coors light drove significant share growth and the.
First half of the year, it did slow down and the third quarter because of the inventory.
<unk> constraints, which we had which were now through because our inventory is higher than it was at the same time last year for Coors light and in December we saw the best industry share trend, we've seen and years outside of the country.
Loading from March for Coors light.
And made to Chill campaign platform is working and we're excited about it.
Millilux.
Trends have been have been strong now and obviously as I said in my opening remarks and not satisfied.
And with with the performance and toe.
And we intend to put more and more money behind it.
That's a very long winded way of saying.
Its both its not either or we're not sacrificing one for the other we believe that we can.
And do more than one thing at one time, and we believe that we've demonstrated because.
And the market, where we've had the most.
Concerned about it.
Execution capabilities and the U S and we've grown our top line we grew our margin.
Strong pricing strong brand mix.
This is the revitalization plan and action it's.
Not a series of one offs.
It's true.
So part of a single strategy and Thats. The revitalization plan, which is specifically aimed to drive topline growth and we believe we will do that and and.
And 2021.
Okay. Thank you so much for all of that is it was helpful. I appreciate it.
Tony.
The next question comes from Rob Seim.
<unk> with Evercore ISI. Please go ahead.
Great. Thank you very much.
Deb and obviously a lot of tremendous initiatives.
And that you have for 2021.
And clearly you're very optimistic.
In terms of the firm's trajectory.
However, obviously, there's a bit of a disconnect in terms of how the public markets are viewing.
Your outlook and prospects.
Just wondering what your thoughts are and.
Terms of share buybacks at some point I know you talked about very significant deleveraging.
Bringing the dividend back.
And as the potential for share buybacks play into this.
And disconnect continues and and also maybe Tracy remind us.
About.
Your cash tax rate.
Which I believe remains very advantaged kind of roughly what that level is and how long it stays at that depressed our lower level.
Thank you very much.
Thanks, Rob good morning.
Look I mean.
We had net.
And as I said earlier on we announced a revitalization plan in 2019, and we're executing net revitalization plan.
I am very pleased with the platform that we laid in 2020 and and I think it gives us a really good springboard.
For for 'twenty, 'twenty, one which is why we felt confident with.
And with the guidance that we have.
And that we've put out there so I understand the skepticism around our ability to execute but we wouldn't be putting guidance out if we didn't believe that we would achieve it.
Tracy was very clear about our leverage goals.
And if you could comment on that.
Capital allocation and trust.
Which I think was the underlying question that Rob had.
Yes.
And so.
So, yes, obviously and.
We are having ongoing and conversation.
And the patients.
And our capital allocation with our board and.
Focus has been on improving leverage ratio because of the.
And commitment to maintain an investment grade rating as well as engaging and our business and.
Okay.
Ed.
To deliver the revitalization and sandwiches around top line growth.
And and.
And as always and we have low.
At our capital allocation and.
Have a look at what gives us the highest cash.
She holds the highest rates of attain we ran fee and everything to our pack model to make those decisions but.
And our intention is to continue to pay down a day.
And key and improved our leverage ratio.
And and active in the per paper Mark.
It is important for us and we see this on the Q3 call as well and Athena and appropriate. Thank you.
Dividends and net updating.
Updating the guidance, that's something that <unk> and <unk>.
Anticipate our board will be net position key to reinstate and the back half of this year.
And the existing teams of the tech cash and Christian <unk> benefits and.
And from the feedback.
And we did with the Miller Coors acquisition.
And that does still run for another few years and.
Rob.
And yes can you remind us what exactly that right. What you expect that what that rate was in 2020, and what you expect it to be in 'twenty one yes.
Yes, so we don't actually give that guidance and we didn't other than giving the guidance and that we've given you know and the consolidated effective tax rate for 2021 being between 20 and 23%.
Yes.
But isn't the cash tax rate half that.
Okay, Yes, that's great.
And progress and.
But it is it does reduce the tax rate.
Ladies and significantly Bob.
Cash point of view.
Okay, Alright, thank you very much.
The next question comes from Bryan Spillane with BLA. Please go ahead.
Hey, good morning, everyone.
Just maybe a follow up question on cash flow I don't think I saw it but Tracy could you help us a little bit with.
And what Youre expecting for capital spending for this year and also.
And maybe tied to that.
And how we should think about free cash flow.
Conversion and 21 are there any sort of big moving parts that we should consider in terms of.
Free cash flow and again, some help with capex would be would be helpful as well.
Yes.
Brian we looked at our matrix our guidance metrics for this year to really align with our strategy around our revitalization tangled.
And then also looked at matrix switch and aligns with our commitment to maintain and.
And at the time of preventive and credit ratings that.
We haven't given capex and.
And we haven't given free cash flow.
And because we do believe that.
And then the target leverage ratio metric and it's more meaningful and more aligned to our strategy.
And I have to put a capex estimate into our into our cash flow statement I mean is it.
And as 2020, a reasonable sort of guide to use just any any any kind of help at all just to get some sense of what we should be flowing in there.
I would say and the guidance that we gave back in 2020, which we subsequently with free and would be the sort of.
And range of Capex that you would expect day, there is nothing significant that lease costs and planned at this stage.
Great. Thank you.
The next question comes from Ryan per day with Guggenheim. Please go ahead.
Yes, good morning, everyone and thanks for squeezing me in.
Got a question regarding the <unk>.
He and beer. So so many on that from there is almost not a weak result.
And the new products showing up so a key question from investors is about your ability to prioritize and not to disrupt your core business. So could you please give us.
And maybe so many of them are comfort from that front and center.
Execution, and secondly, and.
You mentioned, you should reach about $1 billion of sales.
By 2023 and that doesn't include our sensor. So could you. Please help us frame how you get there because it's kind of three years to get to when begin from normal zero. So.
That would be a secret hurtful. Thank you very much.
Thanks, Laurent look a couple of things and the from a.
We've been pretty consistent about one thing Rob is our revitalization plan requires us to more than one thing at a time, which does book and I think.
Quarter is there is there is a fine example of that we grew our topline and the U S. We grew R. R.
Our net sales revenue per hectoliter meaningfully we had positive brand mix and we've demonstrated that we could deal with.
Complexity, there and the.
And the structure that we've put in place and our company was designed to deal with complexity. We've got a team that focuses on our core brands and very pleased with what they've done with Coors light and Miller Lite and other legacy iconic brands and then we've got a team that focuses on beyond beer that's executing against it.
It's exactly as we laid out.
The revitalization plan and we're demonstrating that we can do that in our largest market in terms of the $1 billion revenue and ambition for emerging growth.
And it does it does encompass a number of areas in the emerging growth. So we're not coming from a standing stock. We do have all of our craft companies in that area.
And.
Non al.
And the division we have.
Gi.
THC and.
<unk> beverages, Rgd's and our CBD business. It also includes all of our Latin America exports and licensed markets.
In order to get to $1 billion, we're going to have to grow our top line for the emerging growth Division Bock.
And 50% to give you some idea of the base that we're that we're that we're coming off so.
Hopefully that's helpful.
Yes, thank you very much and good luck.
Guys. Thank.
Thank you.
The next question comes from Steve Powers with Deutsche Bank. Please go ahead.
Hey, Thanks, and good morning.
Yes, just one more question from me on the on the beyond and beyond beer topic Kevin.
And then you've highlighted a lot and this call, but I guess I'm, hoping you could talk a little bit more about the economics of that beyond beer push whether in terms of penny profit margins, especially when it comes to.
And the distribution deals that you've been you've been talking on you mentioned zone a couple of times.
For example, I'm just curious how you can you can clarify how those relationships are structured from the perspective of the Molson Coors shareholder.
And so it truly is a game changer and the energy market.
And that would be great, but I guess, how are those profits to be split between you and your distribution partners and the.
Brand owner itself. Thanks.
Yeah. Thanks, Steve look I mean, each deal that we've done has been done differently and structured differently I think it's safe to say that they all operate and the above premium space from a from a revenue point of view. Some of these deals we've taken equity Stakes and.
Some bigger than others.
But we wouldn't be going into this if we werent intending to make that to make money on these on these deals. We've got a we've got such a route to market advantage from us perspective.
The biggest channel for energy drinks.
To pick one zone.
And C store nobody serves the C store channel better than their distributors. So we think we've got some real structural advantages day.
Sure.
But we're not going to break down each and every deal that we've done rest assured that our and our intention is that these are above premium products and that we will make money on them and we will have equity in <unk>.
And most of the deals that we've done.
Okay. Thank you very much.
The next question comes from Lauren Lieberman with Barclays. Please go ahead.
Hi, Thanks, Good morning, I think to some degree you've kind of covered this.
And my question was really just thinking about the.
And the EBITDA outlook for 'twenty, one and.
If I just think about it and come to a rate of growth flat versus 'twenty is actually better than I thought would be the case and obviously in dollar terms the basis is lower because of the fourth quarter and.
But just putting that thinking about that and the context of the timing with which will be kind of posting marketing spending back and and I'm not asking for quarterly guidance. Its more of a conceptual conversation I would like to have.
And is it kind of investing ahead of recovery is it invest and concurrent with and.
But just how youre thinking about marketing versus revenue growth and supporting some of the newer initiatives could be sort of helpful and interesting perspective. Thanks.
Let me try and do these from color.
Without giving you a quarterly budgets.
And I think youre going to expect that the second quarter would be a meaningful increase in marketing and sales spend because.
There was such a dislocation and the second quarter last year, where we are.
And so much just didn't happen and we were we were pivoting and from still trying to figure out what the pandemic.
And I think it's safe to say that our marketing spend in Q2 will be hardware.
And quite a lot higher than it was in Q2.
Last year.
And that will be investing behind our innovations so.
And going behind Miller Coors light.
At the appropriate times of the of the year, but I think the biggest piece of guidance and I can give you is is Q2 will be it will be a meaningful.
Kris.
Thanks, Thanks Lauren.
This concludes our question and answer session I would now like to turn the conference back over to Greg Kenny for any closing remarks.
Thank you operator, I appreciate everybody joining us today and I know there may be additional questions, we weren't able to answer.
Please follow up with me and our IR team and.
And with any of those questions and we look forward to talking with many of you.
The year over year.
And bolt.
Thanks, everybody for participating in this call and talk to you all soon thank you.
Yes.
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